O'Halloran v. Prudential Sav. Bank (In re Island View Crossing II, L.P.)

• Decision Date: 23 May 2019
• Docket Number: Adv. No. 17-202, Adv. No. 18-280,Bky. No. 17-14454
• Citation: 604 B.R. 181
• Parties: IN RE ISLAND VIEW CROSSING II, L.P., Debtor Kevin O'Halloran, in his capacity as Chapter 11 Trustee for Island View Crossing II, L.P., et al. Plaintiffs v. Prudential Savings Bank, Defendant
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

604 B.R. 181

IN RE ISLAND VIEW CROSSING II, L.P., DebtorKevin O'Halloran, in his capacity as Chapter 11 Trustee for Island View Crossing II, L.P., et al. Plaintiffs

v.Prudential Savings Bank, Defendant

Bky. No. 17-14454

Adv. No. 17-202

Adv. No. 18-280

United States Bankruptcy Court, E.D. Pennsylvania.

Signed May 23, 2019

Steven M. Coren, Katherine L. Perkins, Kaufman, Coren & Ress, P.C., Michael J. Cordone, Stradley Ronon Stavens and Young, LLP, Philadelphia, PA, for Plaintiffs.

Edmond M. George, Michael D. Vagnoni, Obermayer Rebmann Maxwell & Hippel, LLP, Philadelphia, PA, for Defendant.

Aris J. Karalis, Robert W. Seitzer, Karalis PC, Katherine L. Perkins, Kaufman, Coren And Ress, P.C., Philadelphia, PA, for Trustee.

MEMORANDUM

ERIC L. FRANK, U.S. BANKRUPTCY JUDGE

I. INTRODUCTION

Before the court is the Defendant's motion to dismiss under Fed. R. Civ. P. 12(b)(6) (incorporated by Fed. R. Bankr. P. 7012 ), filed in the two (2) above-captioned, and interrelated, adversary proceedings.

Adv. No. 17-202, which may be characterized as raising lender liability claims (and which will be referred to as "the Lender Liability Action"), was commenced in state court by Island View Crossing II, L.P. ("the Debtor" or "IVC") and its principal against Defendant Prudential Savings Bank ("Prudential"). The matter was removed to this court on July 18, 2017, eighteen (18) days after the commencement of the Debtor's chapter 11 bankruptcy case. After his appointment as chapter 11 trustee, Kevin O'Halloran ("the Trustee") succeeded the Debtor as plaintiff in this adversary proceeding.¹ At the time of the adversary proceeding's removal, two (2) claims survived Prudential's preliminary objections in state court: (1) breaches of the lending contract, including the covenant of good faith and fair dealing; and (2) tortious interference with contract.²

On December 3, 2018, the Trustee commenced a second action against Prudential, Adv. No. 18-280, (which I will refer to as "the Avoidance and Subordination Action"). In this second action, based on 11 U.S.C. §§ 544, 550 and 12 Pa. C.S. §§ 5104(a)(2) and 5105, the Trustee requests the avoidance of six (6) transfers to Prudential and recovery of those transfers pursuant to 11 U.S.C. § 550. Also, the Trustee requests equitable subordination of Prudential's claim pursuant to 11 U.S.C. § 510.³

On February 22, 2019, Prudential filed a motion to dismiss ("the Motion"), seeking dismissal of the tortious interference claim in the Lender Liability Action and all claims in the Avoidance and Subordination Action.

With respect to the tortious interference claim in the Lender Liability Action, the Motion will be denied.

With respect to the Avoidance and Subordination Action, the Motion will be granted in part and denied in part.

II. PROCEDURAL HISTORY

The full procedural history of the Lender Liability Action is well known to the parties and was described in detail in my earlier Memorandum, see n.1, supra, so I will not repeat that discussion here. Suffice it to say that when the action arrived in the bankruptcy court, the pleadings were closed. After its removal, the Lender Liability Action remained relatively dormant for approximately seventeen (17) months while the parties "focused on other, more pressing matters of case administration." Island View, 598 B.R. at 558. Since November 2018, the court has remanded certain claims over which it lacks subject matter jurisdiction, see id., and entered a pretrial management order establishing various deadlines.

The Trustee commenced the Avoidance and Subordination Action on December 3, 2018. By order dated December 6, 2018, the Lender Liability Action and the Avoidance and Subordination Action were consolidated for pretrial management and for trial.

Prudential filed the Motion on February 22, 2019. The Debtor and interested creditor Stradley Ronon Stevens and Young, LLP ("Stradley") filed responses and all parties have submitted memoranda in support of their respective positions,⁴ the last of which was filed on March 29, 2019.

III. MOTION TO DISMISS STANDARD

Prudential moves to dismiss the Complaints for failure to state a claim under Fed. R. Civ. P. 12(b)(6).

The standard on a motion to dismiss is well known. As I have previously written:

A motion to dismiss under Fed. R. Civ. P. 12(b)(6) tests the legal sufficiency of the factual allegations of a complaint, and determines whether the plaintiff is entitled to offer evidence to support the claims, A defendant is entitled to dismissal of a complaint only if the plaintiff has not pled enough facts to state a claim to relief that is plausible on its face. A claim is facially plausible where the facts set forth in the complaint allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.

In evaluating the plausibility of the plaintiff's claim, the court conducts a context-specific evaluation of the complaint, drawing from its judicial experience and common sense. In doing so, the court is required to accept as true all allegations in the complaint and all reasonable inferences that can be drawn therefrom, viewing them in the light most favorable to the plaintiff. But, the court is not bound to accept as true a legal conclusion couched as a factual allegation.

The Third Circuit Court of Appeals has condensed these principles into a three (3) part test:

First, the court must take note of the elements a plaintiff must plead to state a claim. Second, the court should identify allegations that, because they are no more than conclusions, are not entitled to the assumption of truth. Finally, where there are well-pled factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.

Santiago v. Warminster Twp., 629 F.3d 121, 130 (3d Cir. 2010) (quotations and citations omitted).

In assessing a Rule 12(b)(6) motion, the court may consider the allegations in the complaint, exhibits attached to the complaint and matters of public record [as well as] undisputedly authentic documents where the plaintiff's claims are based on the documents and the defendant has attached a copy of the document to the motion to dismiss.

In re Boltz-Rubinstein, 574 B.R. 542, 547–48 (Bankr. E.D. Pa. 2017) (numerous citations omitted) (quotations omitted).

IV. FACTS SET FORTH IN THE COMPLAINT

The Avoidance and Subordination Action incorporates the Lender Liability Action's Complaint by reference. I have arranged the adequately-pled facts from both Complaints to form a narrative. For purposes of deciding the Motion, I accept these facts as true.

A. The Prudential Mortgage Loans

The Debtor's principal, Renato Gualtieri ("Gualtieri"), began working in real estate in 1989, through various entities and affiliates. Prudential was Gualtieri's main lender for his ventures. Gualtieri's enterprises took out a series of loans from Prudential, all of which have been repaid in full – except the loans involved in this adversary proceeding.

In September 2011, Gualtieri purchased the controlling interest in the Debtor. At the time, the Debtor owned a 17.5 acre facility along the Delaware River ("the Property"), as well as permits to develop the Property into seventy-three (73) townhouses and ninety-six (96) condominiums. When Gualtieri acquired the Debtor, the Property was subject to a $ 2.5 million dollar first mortgage in favor of the Bucks County Redevelopment Authority (the "RDA").⁵

The prior owner of the Debtor could not complete the complex site work and construction stalled. Gualtieri believed he could accomplish the necessary site work and remediation and gain untapped profits. After Gualtieri bought the Debtor, the Property remained undeveloped for several years while Gualtieri concentrated his efforts on other projects.

On October 19, 2011, less than a month after Gualtieri acquired the Debtor, the Debtor granted Prudential a mortgage on the Property ("the Steeple Run Collateral Mortgage"). The Steeple Run Collateral Mortgage, in the amount of $ 3,911,250, provided Prudential collateral for a loan Prudential made to another Gualtieri real estate development project known as the Steeple Run. Under the loan documents for this mortgage, any default by Steeple Run would allow Prudential to foreclose on the Property. The loan documents recite one dollar ($ 1.00) as the consideration for the Steeple Run Collateral Mortgage.

The Debtor encumbered the Property again on September 20, 2013, taking out a loan from Prudential ("the Durham Loan") in the amount of $ 1,400,000, secured by a mortgage ("the Durham Mortgage"). A portion of the loan proceeds, $ 280,829.84, was used for the benefit of the Debtor. The balance was used to pay down an existing loan owed to Prudential by Durham Manor LLC ("Durham Manor"), another Gualtieri-owned real estate development entity.

The Debtor encumbered the Property still further on May 30, 2014, granting a mortgage to Prudential in the amount of $ 5,136,000 ("the Calnshire Collateral Mortgage"). The Calnshire Collateral Mortgage collateralized an existing loan to Durham Manor and caused Prudential to release an existing mortgage on certain real estate parcels owned by Durham Manor. Thus, the purpose of the Calnshire Collateral Mortgage was to unencumber another entity's separate debt to facilitate the that entity's real estate development project. Prudential provided the Debtor one dollar ($ 1.00) in exchange for executing this mortgage.

In November 2014, the Debtor started to develop the Property. On November 26, 2014, the Debtor obtained a $ 5,541,468 construction loan from Prudential ("the Construction Loan"), secured by yet another mortgage on the Property ("the Construction Mortgage"). The promissory note and loan documents associated with the Construction Loan established a system permitting the Debtor to make incremental draws on the loan as the Debtor completed certain construction benchmarks ("the Draw Process"). The upshot of...